Grace Palma, CEO of China Med Device, interviewed by BioWorld on Tariffed Medical Device

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Grace Palma, CEO of China Med Device, interviewed by BioWorld on Tariffed Medical Device

After the U.S. announced the tariff plan of $300 billion Chinese exports, China released the newest tariff list on $75 billion of U.S. exported goods on Aug 23. Amid the mounting worries on impacted medical devices, Grace Fu Palma, CEO of China Med Device, received interview by Elise Mak from BioWorld MedTech. Please see the article below.

Click HERE for the article on MAH system in China that could be used to counter the tariffs.

China slaps tariffs on more U.S. med-tech exports

By Elise Mak, Staff Writer

BEIJING – The trade war has escalated. On Aug. 23, China announced retaliatory tariffs on $75 billion of U.S. exports, 10 days after the U.S. slapped the same amount on $300 billion of Chinese goods. Once again, the med-tech sector is neck deep in this tariff tit-for-tat.

“The tariffs announced by China on Aug 23 cover over 50 kinds of medical devices,” Xiaoqing Wang, a sales representative of China-based export consultancy firm ETCN, told BioWorld MedTech.

“We’ve been receiving queries from clients about the latest tariffs.”

The Customs Tariff Commission of China’s State Council announced that 5% and 10% tariffs will be imposed on 5,078 U.S. goods in two batches, starting from Sept. 1 and Dec. 15, respectively.

Facing an almost immediate 5% tariff are disposables, including dermal fillers, blood type reagents, X-ray contrast agents, diagnostic reagents, dental cements and dental fillers, bone cements, sterile surgical gut and sterile absorbent hemostatic materials. Tariffs will start Sept. 1.

More medical devices will be subject to tariffs from Dec. 15.

Patient monitors, hearing screening and diagnostic devices, endoscopes and X-ray image intensifiers will face 10% tariffs.

The list for 5% tariff is much longer. It includes electrocardiographs, B type and color ultrasonic diagnostic apparatus, electrical diagnostic devices, diathermy equipment, blood transfusion equipment, respiratory equipment, light bulbs for medical and R&D use, medical vehicles, ultrasonic scanning devices, nuclear magnetic resonance imaging devices, audiometers, instruments and apparatus for ophthalmology, stethoscope, renal dialysis equipment, anesthesia equipment, intrauterine devices and orthopedic instruments.

Dental devices also take up a portion of the list. They include instruments for dental use, dental chairs, dentures, and dental X-ray application equipment.

China able to take up the slack?

Grace Fu Palma, CEO of Boston-based med-tech consulting firm China Med Device, told BioWorld MedTech that for disposables subject to 5% tariffs, China already has manufacturing capability domestically.

“The 10% tariff is to be applied for high value-added imaging and diagnostic equipment.,” Palma said. “After tariffs on MRI, ECG, X-ray machines, B-san, color ultrasound and hemodialysis machines imposed last year, the Chinese government wants to further decrease reliance from high-tech innovation overseas.”

In some ways, the pain of the trade war with the U.S. could help China find some gains in domestic production of devices and the potential reduction in the country’s reliance on med-tech imports.

China has traditionally relied on imports for its high-end devices. To reduce this reliance, it has been pursuing a “Made in China 2025” strategic plan to make the country a dominant global force in high-tech manufacturing by increasing the quantity and quality of domestically produced goods.

The plan is at the very heart of why Washington declared a trade war on China and imposed tariffs of forcing transfers of intellectual property to achieve its goal.

This is not the first time that tariffs have been placed on medical devices. Only this time the scale is much higher. Last year, China put 28 medical devices on its tariff list for U.S. imports. Like this time, many of those were diagnostic imaging devices, including magnetic resonance imaging equipment, X-ray equipment and tubes, ophthalmology instruments and equipment, ultrasound equipment and computed tomography equipment.

The impact of the new tariffs is likely to hit U.S. diagnostic imaging companies most, said Karen Simpkins, a medical device market analyst at market intelligence provider Fitch Solutions, in a report. “While the U.S. maintains an overall trade deficit with China in medical devices of [about] $1.3 billion, it has a surplus for diagnostic imaging, which amounted to $218.8 million in 2017,” she said.

China, on the other hand, seems to be safe from the trade war on the med-tech front, Stephen Sunderland, a partner at L.E.K. Consulting, told BioWorld MedTech.

“There should be few problems in finding local substitutes in China,” he said, echoing Palma’s view that China already has capability to manufacture some of the items on the list.

U.S. hitting back

China is not the only side imposing tariffs on medical devices. In April 2018, the Office of the U.S. Trade Representative (USTR) proposed an additional 25% tariff on Chinese goods worth around US$50 billion, including about 50 medical devices that ranged from consumables, diagnostic imaging, and dental products to orthopedics and prosthetics, patient aids and diagnostic reagents.

The Advanced Medical Technology Association (AdvaMed), for one, is engaging with the USTR on the trade talks, Ralph Ives, executive vice president of global strategy and analysis at AdvaMed, told BioWorld MedTech.

“AdvaMed strongly opposes tariffs by both sides on medical technology products that help save and improve millions of lives every day.”

While the tariffs are worrying industry insiders, there are ways for U.S med-tech manufacturers to go around them to avoid putting patients at risk. Palma has come up with at least two possible solutions.

First is that they can consider contract manufacturing. She said the market authorization holder system is implemented in 21 provinces including the booming med-tech markets of Beijing, Shanghai, Guangdong, Jiangsu and Zhejiang. “The registration holders can now be independent of the manufacturers, encouraging foreign innovations to access China more swiftly and then to set up manufacturing facilities in China,” Palma explained.

Second is re-exportation.

“U.S manufacturers may consider exporting to other countries such as Vietnam, the Philippines and Thailand before entering China to avoid the tariffs,” she said.

Palma said some U.S. players have already begun to take this approach. Medtronic plc, for example, had its surgical power system approved in China through the marketing authorization holder system in Shanghai last April.

“Also, China is willing to absorb the extra cost on necessary high-tech devices. The impact on U.S companies would be less than expected,” she said.